As doubts have been raised over Standard Chartered Bankâ€™s loan offer, other banks have given the government a cold shoulder in its bid to borrow $500 million to bridge the financing gap that puts in jeopardy completion of the Neelum Jhelum hydropower project.
In response to an invitation of the Water and Power Development Authority (Wapda) to 10 commercial banks for negotiations on a $500 million commercial loan, only four banks sent their representatives, according to official documents. Even these banks sought time to give any formal response.
Wapda had invited National Bank of Pakistan, MCB Bank, Habib Bank, Faysal Bank, Barclays, Allied Bank, United Bank, Al Baraka Bank, Burj Bank and Citibank, asking them to submit their term sheets.
Only four banks, UBL, Al Baraka, HBL and Citi sent their representatives while Standard Charteredâ€™s offer was already under consideration. These banks sought more time in order to come up with any offers, according to the documents.

A financing gap, estimated at $1 billion to $1.5 billion, has surfaced after China and Abu Dhabi backtracked from their commitments and cost of the project increased significantly because of alleged corruption. To bridge the gap, government officials were seeking a $500 million commercial loan besides trying to convince Chinaâ€™s Exim Bank to extend another $500 million.
Authorities have lately sought bids from other commercial banks as officials of Neelum Jhelum Hydropower Company and Wapda were already holding negotiations with a single party, Standard Chartered Bank, raising transparency concerns.
The authorities had suggested taking an expensive loan of $526 million from Standard Chartered Bank at a rate of 8%. However, this was fiercely resisted by the Ministry of Finance.
In a meeting on March 15, negotiations were held with Khalid Rashid, Head of Capital Markets and Wholesale Banking Division of Standard Chartered Bank.

An official of the finance ministry said the bank indicated that it could offer the loan at 7.5%, but that too was also on the higher side. Contrary to this, Exim Bank was willing to give the loan at around 5.5%.However, the officials pointed out it would be difficult to get a commercial loan from any bank below 6% because of the â€˜junkâ€™ credit rating assigned to Pakistani bonds.
An interest rate of around 7% works out to about 14% after accounting for currency exchange despite governmentâ€™s sovereign guarantees. The loan is being sought for 10 years.Approved at a cost of Rs85 billion, the cost of 969-megawatt Neelum Jhelum project has swelled to Rs275 billion because of alleged involvement of kickbacks in procurement of tunnel boring machines, change in project design and delay in work.
Instead of penalising those who were responsible for the increase in project cost, the government has started looking into options to arrange more funds.
The officials blamed former Wapda chairman Shakil Durrani and Neelum Jhelum Hydropower Company CEO Lieutenant General (Retired) Mohammad Zubair for misreporting facts. Before the start of work, both of them had assured the government that entire foreign funding had been arranged and lenders were just waiting for approval of the project.
Owing to the financing gap, other financiers like the Islamic Development Bank, OPEC Fund for International Development, Saudi Fund for Development and Kuwait Fund for Development have hinted at stopping their assistance until the government shows serious commitment to the project.